Value Vision International, Inc. is the third-largest home-shopping television network in the United States. An integrated direct marketing company which markets its products to consumers through electronics and print media, ValueVision International was founded in 1990 and incorporated in Minnesota in June of that year. Two of the company’s corporate officers, Chairman and CEO Robert L. Johander, formerly president of Telethon Marketing Company, and President and COO Nicholas M. Jaksich, formerly vice-president of distribution and operations for Lillian Vernon Corporation, began at the same time and remained as of 1997. The company has rapidly grown to establish a solid market position as the third-largest home-shopping television network in the United States, after Home Shopping Network, Inc. and QVC Network, Inc.

Home Shopping and Direct Marketing, Apparatus and Products

The company’s principal electronic media activity is its television home-shopping network, which uses recognized onair television home-shopping personalities to market brand-name merchandise and proprietary and private-label consumer products at competitive or discount prices to millions of homes across the country. The company’s live, 24-hour-per-day television home-shopping programming is distributed primarily through long-term cable affiliation agreements and the purchase of month-to-month full- and part-time block lease agreements of cable and broadcast television time. In addition, the company distributes its programming through company-owned or company-affiliated Ultra-High Frequency (UHF) broadcast television stations, low-power television (LPTV) stations, and to satellite dish owners via a leased communications satellite transponder.

The company, through its wholly owned subsidiary Value-Vision Direct Marketing Company, Inc. (WDM), is also a direct-mail marketer of a broad range of general merchandise which is sold to consumers through direct-mail catalogs and other direct-marketing solicitations. Products offered include domestics, housewares, seasonal items, home accessories, electronics, apparel, giftware, collectibles, and related merchandise. Through WDM’s wholly owned subsidiary Catalog Ventures, Inc., the company sells a variety of fashion jewelry, health and beauty aids, books, audio and video cassettes, and other related consumer merchandise through the publication of five consumer specialty catalogs. The company also manufactures and markets, via direct mail, women’s foundation undergarments through WDM’s subsidiary Beautiful Images, Inc.

Developments During the 1990s

In 1991, one year after start-up of televised operations, the company introduced its Video Shopping Cart service, in which customers could order as many items as they wished in a 24-hour period and pay a single shipping and handling charge for the entire order. The following year the company began leasing blocks of cable television time from certain cable operators for its programming, posting a net loss of $1.8 million. In 1993 sales surpassed $14 million, despite a similar net loss.

At the end of January 1994, the company’s programming was available to approximately 10.7 million cable homes, 2.6 million of which were full-time equivalent (FTE) cable homes, or homes which received the company’s home-shopping program for any period less than 24 hours per day.

That same month, in an attempt to quickly put its TV order-processing and program production infrastructure to much wider use, the company proposed the acquisition of National Media Corporation. A month later, the company made a tender offer for a majority of the outstanding shares of National Media and March saw the two companies enter into a merger agreement. A month later, however, the company terminated the deal with National Media, citing inaccurate representations and breach of warranties by, as well as adverse regulatory developments concerning, the latter company. National Media filed four purported class-action lawsuits against the company, alleging deception and manipulative practices by ValueVision. In 1996, both companies agreed to dismiss all claims and enter into joint operating agreements involving telemarketing and post-production capabilities and to enter into an international joint venture agreement. The company was also granted the right, over three years, to purchase a half-million shares of National Media’s stock. Also in 1996, the company sold its investment in National Media for $8.5 million.

In December, the company completed the acquisitions of WHA1-TV 43, an independent full-power television broadcast station serving the New York City market, for $7.3 million. Net income for 1994 reached $37.6 million, with a net loss of $1.9 million.

January 1995 was a busy month for the company. The first benchmark was the signing of an affiliation agreement with Time Warner Cable Direct, the nation’s second-largest cable operator, adding nearly two million additional homes to the company’s reach. A week later, the company hit its first single day of over $1 million in orders. Two days after that, the company added “The Brand Name Channel” to its program logo. By the end of the first month of 1995, the company’s programming was available to approximately 12.2 million cable homes, 3.5 million of which were FTE cable homes, a 38.5 percent increase, the remaining homes being full-time cable and accounting for a 14 percent increase over the previous year.

As part of the same deal in which it acquired WHAI, the company also purchased and acquired three additional full-power television broadcast stations in various parts of the United States. Joining the company were WVVI-TV 66, serving the Washington, D.C. market; KVVV-TV, serving the Houston, Texas market; and WAKC-TV 23, an ABC affiliate serving Cleveland and Akron, Ohio. The total purchase price for all four stations was approximately $22.4 million. In July, the company changed its NASDAQ stock symbol from VVTVA to VVTV, reflecting the fact that the company no longer would offer multiple classes of common stock.

As the promise of government-mandated ease of access to cable channels by noncable-owned networks like ValueVision had become mired in governmental bureaucracy, the company sought supplemental opportunities to deploy its television production, systems, telemarketing, fulfillment, and customer service operating capacity. In pursuit of this, in August, the company entered into a strategic alliance with Montgomery Ward & Co., Incorporated, the nation’s largest privately held retailer. As part of the deal, Montgomery Ward purchased nearly 1.3 million shares of the company’s stock for $8 million and also purchased advertising spot time on cable systems affiliated with the company pursuant to cable affiliation agreements. Additionally, in an attempt to establish itself as a direct-marketing company, ValueVision began leveraging its television home-shopping infrastructure and expertise to acquire and integrate the Montgomery Ward Direct (MWD) catalog and print merchandising business to build its direct marketing operations. Some of the MWD assets the company intended to acquire included a three million name customer list developed since 1991, $8 million in inventory, $4 million in operating capital, and a sales stream that, even when pared back to reach acceptably profitable levels, the company expected would add approximately $70 million to its annualized revenues.

The company also introduced in 1995 an installment payment program called ValuePay, which allowed customers to purchase and pay for merchandise in two-to-four equal monthly installments. The program was introduced to increase sales while, at the same time, reduce return rates on merchandise with above-normal selling prices. Net income for 1995 was $53.9 million, a 43.4 percent increase over the previous year, attributable primarily to the growing number of homes receiving the company’s programming, with a net loss of $6.1 million.

At the end of January 1996, the company’s programming was available to approximately 13.6 million cable homes, 7.2 million of which were FTE cable homes, leaving 3.7 million full-time cable homes, a 106 percent increase over the previous year. The following month the company completed the sale of the WHAI and WAKC television stations to West Palm Beach, Florida-based Paxson Communications Corporation, the largest owner and operator of broadcast television stations in the United States, for $40 million. In May, the company completed the acquisition of independent television station KBGE-TV 33, the nation’s 13th largest area of dominant influence (ADI), serving the Seattle-Tacoma, Washington market, for approximately $4.6 million.

By the end of June, the company’s programming was available through affiliation and time-block purchase agreements with approximately 250 cable systems in addition to its wholly owned, full-power UHF television broadcast stations. Additionally, the company’s programming was broadcast full-time over nine owned or affiliated low-power television stations in major markets and was available unscrambled to homes equipped with satellite dishes. In mid-August, the company signed a cable affiliation agreement with Tele-Communications, Inc. (TCI), the nation’s largest cable operator, under which TCI would provide the company with access to nearly four million additional homes.

Throughout the year, the company continued to broaden its merchandise mix by expanding the range and quantity of non-jewelry items. September saw the company purchase all the assets of Montgomery Ward Direct L.P., the retailer’s four-year-old catalog business, marketing its home decor and furnishings. The following month, the company acquired a direct mail operation called Beautiful Images, Inc., a Phoenix, Arizona-based leading direct marketer of women’s undergarments. William Fitzgerald, the owner of Beautiful Images and former president and CEO of Hanover House, a direct marketing company, was named CEO of the MWD catalog operations.

In November, ValueVision Direct Marketing, Inc., a wholly owned subsidiary of the company, acquired two direct marketing companies, Catalog Ventures, Inc., specializing in the acquisition and launch of consumer catalogs, and Mitchell & Webb, Inc., a full-service direct marketing and creative agency specializing in catalog design, marketing services and circulation for Catalog Ventures as well as other clients. The sister companies, both located in Boston, Massachusetts, published five catalogs: Nature’s Jewelry, The Pyramid Collection, Seren-geti, NorthStyle, and The Mind’s Eye. Revenues for the company in 1996 hit $88.9 million, a 65 percent increase over the previous year, with net income of $11 million, a huge jump over the previous year’s loss. Revenues were higher due primarily to increased sales volume and higher gross margin percentages in most product categories, excepting electronics.

1997: Setting the Stage for the Future

In January 1997, the company relocated its Montgomery Ward Direct fulfillment facility from Minneapolis, Minnesota, to Bowling Green, Kentucky. By the end of January, the company’s programming was reaching 19.8 million homes. March saw the company announce an agreement to acquire 15 percent of NetRa-dio Network, a subsidiary of Navarre Corporation, a leading national distributor of music, computer software, and interactive CD-ROM products. As part of the agreement, the company’s shopping program audio feed would be carried by NetRadio.

In mid-April, the company initiated an Internet web site which allowed computer users to see and hear the same program the company broadcasted on cable television systems. The following month the company announced an agreement in which Ivana Trump Mazzucchelli would sell her “House of Ivana” line of products, including jewelry, clothing, fragrances, and skin care items, during regular on-air appearances on the company’s televised programming. At the beginning of July, the company acquired 5.1 percent of CML Group, Inc. and at the end of that same month, the company sold its WVVI television station to Paxson for $30 million.

In October, the company and Montgomery Ward restructured the operating agreement between the two companies governing the use of the Montgomery Ward name. Under the new agreement terms, ValueVision would cede exclusive use of the name for catalog, mail order, catalog “syndications,” and television shopping programming back to Montgomery Ward by March 1998. The company also agreed to repurchase the nearly 1.3 million shares of stock Montgomery Ward bought as part of the original deal. By the end of the year, revenues surpassed $159 million, a nearly 80 percent increase over the previous year.

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